According to MuscleNerd, Untethered Jailbreak for iOS 4.2.1 with RedSn0w is about ready. The New RedSn0w will not only jailbreak iOS 4.2.1, already jailbroken (tethered) users can use this new RedSn0w to re-jailbreak to get untethered support without any restore (all installed jailbreak tweaks will stay).

Dev-team and Comex has confirmed that untethered iOS 4.2.1 jailbreak will be out before Christmas 2010. First MuscleNerd came up with a video demonstrating untethered iOS 4.2.1 jailbreak on iPod Touch 4G.